IFRS and US GAAP authorised CMUCPP in terms of the Daily CPI automatically maintains the constant purchasing power of capital and all constant real value non-monetary items (shareholders´ equity,
provisions, salaries, wages, pensions, taxes, trade debtors/creditors, etc) only when updated daily in terms of the Daily CPI during low, high and hyperinflation and deflation - ceteris paribus. European Accounting Association: "Capital maintenance is a competing objective of financial
reporting."

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Sunday, 29 November 2009

Accounting model maintains value - Part 2

Capital - as a variable real value non-monetary item (as traded or untraded shares in a company) - would have emerged even without double-entry accounting.

It is clear, however, that the real value of capital - as a constant real value non-monetary item - i.e. being all the items in shareholders´ equity (issued share capital, reported retained profits, share premium account, capital reserves, etc), can only be maintained constant during inflation with double entry accounting implementing not traditional Historical Cost Accounting (the stable measuring unit assumption) but financial capital maintenance in units of constant purchasing power as authorized by the IASB in the Framework, Par. 104 (a) in 1989 which is compliant with IFRS.

Double entry accounting can maintain the real value of existing constant items (issued share capital, reported retained profits, etc.) even in companies with no fixed assets as long as they at least break even for an unlimited period of time during indefinite inflation, but, only with financial capital maintenance in units of constant purchasing power - not with the traditional 700 year old Historical Cost Accounting model implementing the very destructive stable measuring unit assumption during low inflation.

Thus, instead of saying that the accounting model creates value we can say the accounting model maintains value - qualified as above.

Daily CPI

"Monetarias y Financieras""Descarga de paquetes estandarizados de series estadísticas":At the bottom of the page you will see: "Coeficiente de estabilización de referencia (CER), serie diaria", then choose a year and open the excel file.

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